August 28, 2013

Minn. Whistleblower in Controversial DOJ Deal Loses Case

A Minnesota whistleblower whose case was at the center of a protracted dispute between congressional Republicans and the U.S. Justice Department lost his dispute today in a federal appeals court.

The U.S. Court of Appeals for the Eighth Circuit upheld a district court decision throwing out Fredrick Newell's whistleblower action that alleged St. Paul falsely certified compliance with government-assisted housing requirements. Newell failed to establish he had direct and independent knowledge of the information underlying his fraud allegations, the three-judge panel ruled.

The Eighth Circuit panel also rejected Newell's "novel contention" that he should be able to pursue discovery about how the Justice Department handled his case. The federal government declined to intervene on behalf of Newell, leaving him alone in his legal fight, as part of a "global settlement" with St. Paul.

The Justice Department struck a deal with St. Paul that allowed the government to preserve a legal theory used in the pursuit of discrimination claims. St. Paul walked away from a Fair Housing Act case that the federal government was concerned could undermine the recovery of $750 million in various unrelated lawsuits. The agreement, in 2011, meant DOJ would not throw the weight of the federal government behind Newell in his False Claims Act suit.

Newell's lawyers argued the government improperly used his case as a bargaining chip. The circumstances of the DOJ-St. Paul deal—and whether the Justice Department should even make such deals—became the focus of congressional reports and hearings this summer on Capitol Hill.

"We reject this novel contention because none of Newell's allegations concerning a secret agreement between the government and the City had anything to do with the basis for the district court’s entry of its adverse final judgment—that it lacked subject matter jurisdiction over Newell's qui tam action because of the public disclosure bar," Judge James Loken wrote in today’s Eight Circuit opinion.

"After the government declined to intervene, Newell continued to litigate his qui tam claims," Loken wrote. "Had he prevailed, he would have been awarded a larger percentage of the recovery than if the government had intervened."

Republicans used questions about the DOJ deal to hold up the political appointments of four Justice Department lawyers to leadership roles, most visibly that of then-Assistant Attorney General Thomas Perez, who orchestrated the St. Paul settlement, to be secretary of the Labor Department. Perez has since been confirmed.

Lawyers who represent whistleblowers say federal judges have granted the Justice Department wide discretion to make such agreements, but that such deals send a message that the government will forsake a case in favor of other government priorities.